Semiconductor tester Teradyne (NYSE:TER) reports its Q3 2006 earnings after close of market Wednesday. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Seventeen analysts still follow Teradyne. Six of them rate the stock a buy; nine more a hold; and two a sell.
  • Revenues. On average, the analysts are looking for a 9% sales decline, to $350.5 million.
  • Earnings. But profits are expected to more than double versus last year, to $0.20 per share.

What management says:
Two quarters ago, CEO Mike Bradley reassured investors that the company was "off to a strong start in 2006." One quarter later, he made good on that promise, as the semiconductor-testing firm blew past analyst estimates for its second-quarter earnings, recording $0.31 per share pro forma, versus similarly pro forma predictions of $0.25 from Wall Street. (In Teradyne's case, "pro forma" actually had a good connotation last quarter, as its numbers were less than the company was able to report under GAAP.)

Commenting on the second quarter's banner results, Bradley termed them "exceptional" and highlighted the "very strong demand for [Teradyne's] Semiconductor Test products with short lead times" on sales. Apparently, he thinks the good times will continue when his company reports Q3 results on Wednesday, and predicts we'll see something in the neighborhood of $365 million in sales, and GAAP profits close to what analysts predict, give or take a few pennies.

What management does:
Teradyne's profitability surged this year, in comparison to last. Sales are up 73% year-to-date against only a 42% rise in cost of goods sold (lifting the rolling gross margin). Incredibly, the firm held its selling, general, and administrative costs to just a 6% rise during the same period. With so little need to market its wares, I find Bradley's assertion that lead times on sales are "shortening" entirely believable.

Margins %

4/05

7/05

10/05

12/05

4/06

7/06

Gross

47.3

47.3

41.0

38.3

41.2

44.0

Op.

5.3

(7.3)

(16.3)

(6.0)

3.0

10.6

Net

6.1

(6.0)

(15.9)

8.4

15.3

22.7
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Second verse, same as the first: My concern about Teradyne is primarily that it's not taking advantage of the surge in sales to correspondingly raise its R&D expenditures to keep ahead of the competition. Against a 73% surge in sales, and a year that has so far been even more profitable than last year's first six months were unprofitable, I don't see why R&D spending is down 15% year over year.

Competitors:

  • Advantest (NYSE:ATE)
  • Agilent (NYSE:A)
  • Credence Systems (NASDAQ:CMOS)
  • CTS (NYSE:CTS)
  • Data I/O (NYSE:DAIO)
  • LTX (NASDAQ:LTXX)

Where does Teradyne fit into the semiconductor production cycle? Find out in Stephen Simpson's " Does Teradyne Pass the Test? " Or learn about other market-beating tech stocks in our Motley Fool Rule Breakers newsletter.

Fool contributor Rich Smith does not own shares of any company named above.